CA - Bengal Capital - Curaleaf: The Large MSO Boom To Bust Cycle

2024-02-10 06:30:00 ET

Summary

• Curaleaf's discontinued operations to compare Q3 2022 to Q3 2023.
• Many in Curaleaf likely understand that their subpar performance in many markets will be almost impossible to paper over with financial adjustments or management commentary at some point soon.
• Despite what we think is clear evidence, Curaleaf generally trades at a premium to average multiples in the space.

The following segment was excerpted from this fund letter.

Patterns Repeating: The Large MSO Boom to Bust Cycle

One of the first questions financial results are meant to answer is a seemingly simple one: How is the business from last year doing today? Large MSOs, with exposure to states in different stages of maturity (e.g., assets in low priced Michigan and higher priced Illinois) are, as we discussed above, already difficult to parse because they do not willingly segregate results. Further complicating matters is that many large MSOs have both locusted their way out of more mature markets and locusted their way into new ones through divestments and acquisitions. As old abandoned markets are shoved into the accounting black hole of discontinued operations and new operations are consolidated in, it becomes increasingly difficult for an investor to get a quick feel for how last year's business is doing this year because the very makeup of the businesses has changed year over year....

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